Saturday, February 24, 2018

Weekly Indicators for February 19 - 23 at XE.com


 - by New Deal democrat

My Weekly Indicators post is up at XE.com.

One of the advantages of tracking data that is updated every week is that you can spot a trend early.

Well, February is shaping up to be a rough patch.

Friday, February 23, 2018

China, not automation, is by far the biggest factor in the decline of prime age labor force participation


  - by New Deal democrat

Perhaps the biggest mystery in economic analysis in the last few years has been trying to find an explanation for the big decline in labor force participation since 1999.  A recent NBER working paper by Abraham and Kearney has posited the most comprehensive answer to date.  Since it was summarized in this Washington Post article, I'm just going to quote a few paragraphs and suggest that you read the entire article.
The share of Americans with jobs dropped 4.5 percentage points from 1999 to 2016 — amounting to about 11.4 million fewer workers in 2016. 
At least half of that decline probably was due to an aging population. Explaining the remainder has been the inspiration for much of the economic research published after the Great Recession.
- snip -
University of Maryland economists Katharine Abraham and Melissa Kearney built [a method to arrive at a detailed analysis of the data]. After reviewing the most robust research available and doing some rough-but-rigorous math to estimate how much job loss each phenomenon can explain, the duo discovered something surprising: pretty much all the missing jobs are accounted for. 
Just as important, they pinpointed the culprits. In a draft paper released by the National Bureau for Economic Research this week, Abraham and Kearney find that trade with China and the rise of robots are to blame for millions of the missing jobs.   

To summarize, here are the number of job losses they found due to each reason:

China 2,650,000
Automation 1,400,000
Minimum wage increases 490,000
SS disability 360,000
Veteran's disability 150,000
Incarceration 320,000
TOTAL: 5,320,000

Here's the accompanying graph:



Notably, the authors found that both immigration and the "Mr. Mom" contribution to this number was trivial. One thing I wish they had explored, but I did not see any comment, is the issue of child care costs causing some mothers to decide it would be better to stay at home and raise their children vs. be in the labor force, which I concluded several years ago was probably a much more significant factor.

The total above is virtually equal to the entire decline in the number of prime age persons in the labor force since 1999.  But the most significant point for me is that *almost half* of all of the decline prime labor force participation can be ascribed to:
China’s accession to the World Trade Organization in 2001 and its subsequent rise to the top of the global export market.
Something tells me that that a lot of those workers who were displaced by China live in places like Pennsylvania, Michigan, and Wisconsin.  A big "thank you" to Bill Clinton, Brad DeLong and all of the free-trader Democratic neoliberals for doing their part in the rise of Donald Trump.

Thursday, February 22, 2018

Initial jobless claims: the single most positive aspect of the entire economy


 - by New Deal democrat

I haven't been bothering to comment on initial jobless claims reports lately, for the simple fact that every week it's the same story:  they're good! In fact, the initial jobless claims reports are probably the single most positive aspect of the entire economic expansion.  For all intents and purposes, nobody is being laid off!

For initial jobless claims even to be giving a "caution signal" about the economy, I would need the YoY comparison to increase:



Note that this frequently but not always happens several years in advance of any downturn.  By contrast, current numbers are running on the order of 5% less than last year.

One dismissal that it occasionally heard is that the number is bogus because there are fewer "covered employees," i.e., employees entitled to make a claim for unemployment benefits, in this expansion than previously.

While the absolute numbers of employees who are not covered has grown, as a percentage of all employees the share in this expansion is similar to that of the last few expansions:



So, what happens to initial jobless claims if we norm by the percentage of covered employees?  This:




The number is still at multi-decade lows. but would be more on the order of 250,000 per week than 225,000 per week. Still very good for workers.

Wednesday, February 21, 2018

Conflicting reports on the "rental affordability crisis"


 - by New Deal democrat

Almost four years ago HUD warned of "the worst rental affordability crisis ever," citing statistics that
About half of renters spend more than 30 percent of their income on rent, up from 18 percent a decade ago, according to newly released research by Harvard’s Joint Center for Housing Studies. Twenty-seven  percent of renters are paying more than half of their income on rent. 

This is a serious real-world issue. I have been tracking rental vacancies, construction, and rents ever since.  The Q4 2017 report on vacancies and rents was released a few weeks ago, so let's take an updated look.

In the second quarter of last year, median asking rents zoomed up over 5% from $864 to $910. In the two quarters since, they have remained at that level:


Here is an updated look at real. inflation adjusted median asking rents, showing that rent pressures on household budgets continued to rise in 2017:

Year Median
Asking Rent
Usual weekly
earnings 
Rent as %
of earnings

198833038286
199240143792
199342245088
200047856884
200254560790
2004 59962995
200968073992
201271776893
2013 73477894
2014  76279196
2015813809100
2016859832103
2017 H1887860103
2017 Q3912866105
2017 Q4 910854107

The big increase in unaffordability is unfortunately of a piece with the rental vacancy rate which, after appearing to have bottomed in 2016, tightened again in this report: 



Meanwhile the CPI for owner's equivalent rent, the major component of inflation, remains near the highest levels in a decade, at over 3% YoY: 



Recently, HUD premiered a Rental Affordability Index, using the ACS data. Similar to my chart above, it compares median renter income with median asking rent. Please note, however, that this has only been updated through Q1 of this year: 

Like the median household income data, this shows renters' income bottoming out in 2011-12, and rising since relative to rents as calculated by the ACS.




Unlike my calculation above, HUD's shows that rental affordability actually *improved* (!) in 2016, and remained stable in 2017 as the recent spike in rents was more than matched by a big increase in renters' median incomes.

As a result, the trend in "rental affordability index," according to HUD, has been one of easing since 2011, as shown below:
.


Note in contrast that their measure of housing affordability declined a little in 2017, making home-buying the least affordable since 2008, although better than during the bubble years. 

I'm not sold on HUD's method, mainly because it relies upon annual data released with a lag. In other words, the entire last year plus is calculated via extrapolation.  

Finally, there is a monthly rental index calculated by Rent Cafe.  This has the benefit of being much more timely.  Since it is not seasonally adjusted, the index must be compared YoY. While Zumper only includes 12 months of data in their releases, Mike Shedlock was able to obtain the entire history of their data, and published the result graphically last week:



Rent Cafe's measure of rent shows that the surge occurred in 2015 and early 2016, and has abated to less than YoY since, in complete contrast to HUD's and the Census Bureau's data.

Parenthetically, now that I have the full history of Rent Cafe's Index, I can follow it monthly, which will make for a much more timely measure than the quarterly Census Bureau report.

So unfortunately the conclusion here is messy. This quarter's Census report indicates no relief from the "rental affordability crisis." HUD (from the 3rd quarter), shows stability at a level of improved affordability due to income growth, and unlike either of the two government sources, Rent Cafe shows rent increases abating throughout 2017.

Tuesday, February 20, 2018

No, Matt Yglesias, Trump is *not* "probably gonna be re-elected"


 - by New Deal democrat

While I generally agree with the political and social observations of Matt Yglesias and Ezra Klein, their takes that involve the economy frequently drive me crazy.

So it was this morning when I encountered these two tweets from Yglesias:



This is just incredibly shallow analysis and, well, wrong!

Presidential and midterm elections are completely different beasts. Midterms are decided by partisan turnout -- people who strongly agree or disagree with the policies that have been enacted as the President's agenda. Presidential elections are primarily (although certainly not exclusively) driven by the strength of the economy.

So let's take a look at Yglesias' three examples. The below three graphs show real GDP and job growth during the first terms of Reagan, Clinton, and Obama:





All three were either in or just coming out of recessions during the first two years of their terms. When the midterm elections took place, both real GDP and employment were actually lower than just before Reagan and Obama, respectively, took office. In Clinton's case both were modestly higher. But by the end of their fourth year, when they gained re-election, economic expansions were well in place for all three.

And this showed up in their first term approval numbers, shown below:
Reagan:

Clinton:

Obama:

All three Presidents were quite unpopular (though not so unpopular as Trump) when the midterms took place. But all three were above 50% by the time they ran for re-election.

Contrast this with George H.W. Bush, who lost his re-election bid, as the economy was coming out of the 1991 recession:



Trump has *awful* approval ratings in the face of an economy that is doing quite well. In fact he has *never* had approval ratings over 50%. While expansions do not die of old age, I would be quite surprised if this one had not faltered by November 2020. His only chance for re-election, in my opinion, is if the Democrats manage to nominate somebody with at least as much baggage as he.

Nobody should be taking any elections for granted, but I see absolutely no basis in fact for Yglesias' assertion that Trump will probably be re-elected.

How big a rise in interest rates would it take to create a recession?


 - by New Deal democrat

Based on past experience, how much of a spike in interest rates would it take for the economy to reverse?

I lay down markers both in bond yields and the duration of the rise over at XE.com.